Negative interest rate on mandatory deposit accounts in debt enforcement proceedings lawful

Introduction

Since January 22 2015 the Swiss National Bank has charged a negative interest rate (currently 0.75%) for sight deposit account balances that Swiss banks hold with the Swiss National Bank, provided that the sight deposit account balance exceeds a given exemption threshold.(1)

It has been reported that many banks have compensated for the effect of this negative interest rate with a higher margin in other retail business (eg, loans and mortgages). Some banks have also charged negative interest to corporate clients.

In one case, the Zug Cantonal Bank seized the opportunity to apply a negative interest rate to deposits which had been made by the liquidators of a company in composition proceedings. This decision led to a new Federal Supreme Court judgment.

Negative interest rate on deposited proceeds

Background 

According to the Debt Enforcement and Bankruptcy Act (a federal act that applies across Switzerland), debt collection and bankruptcy authorities must deposit any assets that they received in the course of debt enforcement proceedings into an account with a designated bank within three days. This duty also applies to liquidators in composition proceedings.

Each canton is competent to decide which bank should be in charge of this task in the canton's territory. In most of the cantons, the cantons chose their own cantonal bank (which is state owned or partially state owned).

In the canton of Zug, the Zug Cantonal Bank is a designated bank explicitly mentioned in local law. In addition, according to local law, all institutions established in Zug which are subject to the Act on Banks and Saving Banks are authorised to act as a designated bank as defined in the Debt Enforcement and Bankruptcy Act.

Facts 

In a recent Federal Supreme Court case,(2) the liquidators of a company transferred the amounts collected during composition proceedings to the Zug Cantonal Bank in accordance with the Debt Enforcement and Bankruptcy Act.

On May 19 2015 the Zug Cantonal Bank decided to charge a negative interest rate of 0.75% on the deposited amounts that the liquidators of a company undergoing composition proceedings had transferred to the bank in accordance with the act. The bank communicated the change in the terms and conditions by letter, announcing that the negative interest rate would apply from June 1 2015.

The liquidators tried to challenge the decision with the Debt Enforcement Supervisory Authority. The appeal was rejected by the first-instance court on formal grounds. In particular, the court deemed that the Zug Cantonal Bank was not under the direct supervision of the Debt Enforcement Supervisory Authority and therefore that it was not competent to define the level of the interest rates applied by the banks designated to fulfil the purposes set out under the act. The letter of the bank was a business communication, nothing else. Moreover, the liquidators could deposit the proceeds with another designated bank.

The liquidators appealed to the Federal Supreme Court, which upheld the first-instance judgment.

Merits 

The Federal Supreme Court deemed that designated banks in debt enforcement proceedings have no statutory obligation to apply a positive interest rate on deposited amounts. Thus, the Zug Cantonal Bank's decision to charge a negative interest rate could not be challenged with the Debt Enforcement Supervisory Authority.

In particular, the decision of the Zug Cantonal Bank on negative interest was not a debt enforcement decision in application of the act. According to the Federal Supreme Court, the decision is a matter that is within the competence of the cantons only, as they must designate the banks which can receive the deposits and thus which can also offer adequate remuneration for the deposit.

The court considered that it was true that the cantonal bank fulfilled public law purposes when it was acting as a deposit bank for debt enforcement proceedings. However, the court deemed that this did not mean that the application of a negative interest rate had to be considered as falling within the scope of the act.

Comment

The majority of Swiss banks are still reluctant to charge negative interest rates on private clients because of the reaction of the general public; some of them prefer to circumvent the problem with indirect means.

The decision of the Zug Cantonal Bank to charge a negative interest rate may be justified by the fact that the client of the deposit was a company which was undergoing composition proceedings. The decision certainly had no effect on the general public, but became public because of the Federal Supreme Court decision.

For further information on this topic please contact Sabina Schellenberg or Stéphanie Oneyser at FRORIEP by telephone (+41 44 386 6000) or email ([email protected] or [email protected]). The FRORIEP website can be accessed at www.froriep.com

Endnotes

(1) See www.snb.ch/en/ifor/finmkt/operat/id/finmkt_nz.

(2) Federal Supreme Court, April 7 2016, Nr 5A_555/2015, see www.bger.ch (in German).

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